What happens to the aggregate demand curve when the Fed reduces the money supply?
A) It shifts leftward, lowering real GDP and the price level.
B) It shifts leftward, raising real GDP and the price level.
C) It shifts leftward, lowering real GDP but raising the price level.
D) It shifts rightward, raising real GDP and the price level.
E) It shifts rightward, lowering real GDP but raising the price level.

Question

Quizplus · Accepted Answer

When the Fed reduces the money supply, it will cause interest rates to rise, which will lead to a decrease in investment spending and aggregate demand. A leftward shift of the aggregate demand curve will result in lower real GDP and a lower price level.

What Happens to the Aggregate Demand Curve When the Fed